Airbnb WHT case- CoJ decides online withholding tax is OKLeave a Comment
Airbnb WHT – Introduction
In a recent court case, the Court of Justice in the European Union (EU) has ruled that it is legally acceptable for Italy to impose a withholding tax (WHT) and data-gathering obligations on non-resident online platforms that facilitate short-term property rentals like holiday lets.
However, the obligation to appoint an Italian tax representative liable to pay the WHT was prohibited by the EU law fundamental freedom to provide services.
The ruling has implications for other EU member states with similar rental markets, as they might also be tempted to bring in their own WHT regimes that could impact non-resident platforms.
The case began when Italy introduced three obligations on non-resident platforms in the short-term letting sector in 2017:
(1) collecting income-related data on Italian rentals,
(2) withholding tax on rental income, and
(3) appointing a local tax representative with responsibility for withholding the tax.
Airbnb WHT challenge
Airbnb challenged these rules, arguing that they were incompatible with the freedom to provide services.
The ruling is part of the EU’s ongoing attempts to regulate the economic models of online platforms in areas such as tax and data-protection.
The judgment concerns tax and data-collection and sharing obligations imposed on online platforms and the extent to which tax authorities can use platforms as a de facto compliance arm for the ‘gig’ economy.
The court held that the obligations to collect data and withhold tax at source did not constitute a restriction on the freedom to provide services. However, the obligation to appoint a tax representative in Italy was deemed a breach of the freedom to provide services.
The ruling confirms that direct taxation is not an EU-competence yet, and in principle, each member state could introduce its own WHT regime applicable to online platforms.
DAC 7 implications?
One key part of the case is DAC 7, a council directive that requires most online platforms to conduct due diligence on their service-providing users and report the information to one or more EU tax authorities.
DAC 7 does not require platforms to act as tax collectors; only as information providers.
In the short-term, the case allows Italy to impose WHT obligations on non-resident platforms.
The long-term implication is that other EU member states might be tempted to introduce their WHT regimes, which could impact non-resident platforms in the medium term.
If you have any queries relating to the Airbnb WHT case or Italian tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.